October 19, 2010

Essex Ins. v. Prof. Building Contractors: settlement offsets should not be considered when calculating ratio

It's amazing how many questions continue to arise with respect to the proper method for calculating the ratio between punitive damages and compensatory damages.  In this unpublished opinion, the California Court of Appeal (Second Appellate District, Division Two) tackles the following ratio-calculation issue:

Whether the one-to-one ratio between compensatory damages and punitive damages ordered by the trial court and affirmed by this Court must be measured by the jury's award of compensatory damages or by an amount that takes account of a setoff for a third-party settlement.
The court answers the question by concluding that the ratio calculation should not take settlement offsets into account; courts should compare punitive damages to the jury's award of compensatory damages before any post-verdict reductions under Code of Civil Procedure section 877

The opinion relies on out-of-state authorities reaching the same result.  But it makes no mention of  some prior California opinions that appear inconsistent with this result.  Two published Court of Appeal opinions have held that a proper calculation of punitive damages should take into account any amounts the plaintiffs received from third parties as compensation for their injuries.  (See Palmer v. Ted Stevens Honda, Inc. (1987) 193 Cal.App.3d 530, 540-542 and Krusi v. Bear, Stearns & Co. (1983) 144 Cal.App.3d 664, 680-681.)  Perhaps the Court of Appeal thought these cases were distinguishable, or perhaps the parties simply did not call them to the court's attention.  In any event, given the apparent conflict in these cases, we probably haven't seen the last of this issue. 

Related post: Essex Ins. v. Professional Building Contractors: punitive damages reduced to 1-to-1 ratio in insurance bad faith case